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Beneficial Ownership Transparency

 

Every year, over two million corporations, LLCs, and other business entities are formed in the United States—with many states collecting less information from the individuals forming these entities than from people applying for a driver’s license. Information about natural persons who directly or indirectly exercise substantial control and persons who receive substantial economic benefits from the company/legal entity is not collected. This anonymity facilitates domestic and foreign corruption by allowing individuals to hide their identities and their corruptly obtained assets behind the façade of a U.S. corporation. Once a U.S. corporation is formed, it can easily open one or more bank accounts, wire money, buy property like any other company, and engage in activities that launder the tainted funds. A 2011 study by the Stolen Asset Recovery Initiative – “The Puppet Masters” – found that in nearly all of the 150 grand corruption cases analyzed, corporate vehicles were misused to conceal the identities of corrupt public officials.

The U.S. government has pledged to increase transparency of companies formed in the United States in various fora such as the Open Government Partnership National Action Plan, G8 Action Plan for Transparency of Company Ownership and Control, and most recently the G20 High Level Principles on Beneficial Ownership transparency. However, meaningful progress in the U.S. remains elusive.

The Coalition for Integrity believes it is crucial that we achieve the following goals in the U.S.:

  • Require states to collect information about the beneficial owners of companies.
  • Require financial institutions to determine and verify the identity of the beneficial owners of legal entity customers.
  • Require the real estate industry to carry out adequate background checks to determine where the money used for luxury property comes from and identify the ultimate individual with a beneficial interest in the property.

Our recent advocacy toward these goals includes the following:

  • Urging the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) to strengthen and finalize the rules proposed in 2014 requiring financial institutions to carry out appropriate due diligence to identify and verify the ultimate beneficial owners of legal entity customers. As a result of our advocacy, Treasury finalized the rules in May 2016 but significant gaps remain.
  • Urging FinCEN to close the loopholes in the current legal framework that allow corrupt individuals to launder money in the U.S. through anonymous real estate transactions. In February 2015, the New York Times published a multi-part investigative series “Towers of Secrecy” showing how billions of dollars worth of luxury real estate in New York City has been purchased using anonymous companies by individuals under investigation for corruption and other crimes. A month later, we sent a letter signed by 17 civil society organizations to FinCEN seeking action to close the loopholes that enable the corrupt to enjoy luxury lifestyles with ill-gotten gains. The New York Times printed an article on the advocacy letter with quotes from both Treasury and our organization. As a result of our advocacy, the U.S. Department of Treasury announced in January 2016 that it would begin a pilot project for identifying and tracking secret buyers of high-end properties in two of the nation’s major destinations for global wealth: Manhattan and Miami-Dade County from March – August 2016. We welcome the announcement and ask Treasury to expand the program to the entire country and make it permanent.
  • Supporting incorporation transparency legislation in the U.S. Congress that would require states to collect beneficial ownership upon company formation. The Coalition for Integrity welcomed the introduction of bills by Representative Carolyn Maloney (D-NY) and Senator Sheldon Whitehouse (D-RI) in the 114th Congress –both titled the Incorporation Transparency and Law Enforcement Assistance Act – that would require Treasury/states to collect, maintain and update beneficial ownership information on legal entities for law enforcement purposes.  Our press release is here.  Bipartisan legislation requiring incorporation transparency has been proposed in each session of Congress since 2008 but has never become law. The Coalition will continue to advocate for and support such bills through, for example, letters like the ones we sent to Senator Levin, and Representatives Maloney and Waters .
  • Advocating that beneficial ownership information for all corporate bidders on World Bank-financed procurements be collected and published. In June 2015, we submitted a letter signed by 107 civil society organizations urging the World Bank to collect and publish beneficial ownership information for legal entity bidders on Bank-financed procurements. Reuters published a story on the letter with quotes from our organization and the World Bank’s Chief Procurement Officer. In July 2015, the Bank announced a new procurement framework that includes many of the recommendations and suggestions we advocated. We will continue to monitor closely the development of the regulations that will accompany this new framework as well as how it is implemented.
  • Initiating advocacy efforts calling for the U.S. Government to collect and disclose beneficial ownership information of corporate bidders on U.S. federal procurements.

Other useful links:

Transparency International: Beneficial ownership transparency is a major priority of Transparency International’s campaign, Unmask the Corrupt.

European Union: In June 2015, the Fourth European Union Anti-Money Laundering Directive came into force. Under the new rules, the ultimate owners of companies will have to be listed in central registers in EU countries, open both to the authorities and to people with a “legitimate interest”, such as investigative journalists.

United Kingdom: The United Kingdom enacted legislation in March 2015 that requires U.K. companies to keep a register of people with significant control over the company (those individuals who own or control more than 25 per cent of a company’s shares or voting rights or who otherwise exercise control over a company or its management).